Bank charges under scrutiny

The Office of Fair Trading is stepping up its investigation into the level of bank charges in the UK.

After conducting an informal study for the past six months, the consumer watchdog has decided that a fuller and more formal investigation is needed.

The OFT has found that trying to set rules across the banking sector would be likely to fail as each bank works out their charges differently.

A spokesman for the OFT said: "What we really need to do is work out how individual banks operate and set their charges."

The launch by the OFT in September of an informal study into current account charges sparked fears that banks may end free banking if the watchdog decided to cap penalty charges for exceeding overdraft limits.

Many had expected that the OFT's informal study would conclude that current account fees are too high. The consumer group Which? says banks make £4.7bn from overdraft charges, which help pay for the administration of all current accounts.

John Fingleton, head of the OFT, explained the decision to pursue a more formal investigation: "A quick-fix solution is not the answer as this might be of limited long-term benefit and could have unintended and far-reaching consequences across the whole sector and on consumers as a whole."

The launch of the investigation comes the day after a study by CapGemini showed that half the annual cost to the consumer of banking in the UK comes from "exceptional handling" - including controversial excess overdraft charges. This compares with just 6pc in North America and the eurozone.

However, the annual study did also find that at €71 (£48) a year, banking in Britain is cheaper for the consumer than in both Europe and North America.

Further details about the scope of the investigation will be released next month.